Global tax war looming and US won’t be backing down

Posted On: December 4, 2014

The United States won’t give up its right to tax multinationals, and nations will go to war soon with countries like China on taxing rights, a US tax head says.

Grant Thornton’s national managing partner of tax in the United States, Randy Robason, is in Australia this week for a conference where tax heads will be discussing the G20 and OECD plan to get more tax out of multinationals, known as base erosion and profit shifting (BEPS).

Asked about the plan, Mr Robason, a Texan who advises some of the US’s largest companies, said: “Ultimately it won’t work.

“It will be a race between countries to create an advantage for themselves,” he said. “It will result in countries putting in their own tax laws.”

Like other countries such as Australia, China and Indzia, the US government wanted corporations to pay their fair share of tax, he said. But that could not be at the country’s expense, or at the expense of the corporation, whereby it was double-taxed.

The fight between governments for taxing rights has already started. Last month the Chinese government hit Microsoft with a $140 million tax bill.

Microsoft, which disputes the backdated figure, is the latest of a series of US technology companies accused by the Chinese government of tax evasion.

Microsoft’s overall effective tax rate, according to its this year’s annual report, was 21 per cent – well below the standard US corporate rate of 35 per cent. The company channels earnings through “foreign regional operations centres” in Ireland, Singapore and Puerto Rico. It is unclear from its report what tax the company paid on its Australian profit.

But US tech companies are not the only ones that profit-shift. Chinese companies, including e-commerce giant Alibaba, also channel profits through hubs – in Alibaba’s case, through the Cayman Islands.

Mr Robason said governments needed to be careful about killing the goose that laid the golden egg. “What you see today is a lot of gamesmanship and that’s what you’ll see from the US [government].”

The Organisation for Economic Co-operation and Development’s head of tax, Pascal Saint-Amans, told Fairfax Media recently he agreed there would be greater debate over taxing rights between governments as a result of the plan against tax avoidance, but at least there would no longer be tax havens.

The Tax Office, meanwhile, has defended accusations that it doesn’t collect enough tax from multinationals.

In a speech last week to the Institute of Public Accountants conference, ATO Assistant Deputy Commissioner George Hitti said the agency had stepped up the fight against multinationals.

“We are and will continue to pursue those who fail to pay the right amount of tax – be they individuals, small businesses or large corporations,” he said.

But he said the Tax Office had been talking to about 70 per cent of ASX 200 companies with more than $250 million turnover and found that most of them were not as risky as they used to be.

“We notice that the appetite for taking on tax risk – ie, the risk of the ATO taking a different view to them, is currently decreasing if anything,” he said. “We know that the majority of large corporates pay the right amount of tax within the current laws.”